North Texas real estate shattered a number of records as we closed out the year. December saw record home prices in December as the Federal Reserve continued to pump asset prices. Available home inventory in the Dallas-Fort Worth area dipped to new record lows. Investors, speculators and other home buyers were busy fighting over the dwindling pool of properties available for for sale.
The number of homes for sale in North Texas slipped to roughly 11,400 in December. There would be about 30,000 homes for sale in the DFW area under normal conditions. At the pace of sales last month, there was just one month of available supply for all of North Texas. That’s a new record low. There were only 2 weeks of supply in Denton and Collin counties last month. Those were also new record lows. There were only 780 homes for sale in Denton County Texas in December. That’s for a population of roughly one million residents.
With the record lows in inventory, prices shot to the moon. Buyers rushed in for the typical year-end buying spree, many taking advantage of still historically low mortgage rates. The median price of a North Texas home hit a new high of $345,900 in December 2021. Average prices were just shy of a record at $417,480. The median price of a new home in Dallas-Fort Worth hit a record high of $379,878. The median price of new construction in Denton County rose to a record $430,149 as the supply of new homes in the area hit a record low of just 295 new homes for sale.
Financialization Nation Comes to North Texas Real Estate
The North Texas real estate market is firmly in the grips of a massive financialization scheme which has distorted the market beyond all recognition. This is what it looks like when your housing market is drunk on liquidity, speculation and distortions. How could this happen? Well, it’s pretty simple, not that you will hear the Dallas Morning News even discussing it.
$Trillions in monetary and fiscal stimulus during Covid have upended the housing market like never before. 2021 started with some reasonable correction in the market and rising rates, but the Federal Reserve was having none of it. Jerome Powell and FOMC officials spent the entirety of 2021 pretending that inflation was transitory even while home prices were posting double-digit prices increases every month.
Now the cat is out of the bag. Federal Reserve officials are staring at inflation numbers that would make your head spin. 2022 is starting off with some seriously volatile market action as risky assets with grossly inflated valuations run into the potential reality of multiple Fed rate hikes and even balance sheet shrinkage. Quelle the horror!
As I was warning readers last year. liquidity is a double-edge sword. Those rising asset prices are fun on the way up. Unfortunately, it’s easy to be lulled into thinking those Goldilocks price increases can last. There is a cost to continually pumping asset prices higher despite the underlying economic fundamentals which may not support them. This is a lesson we learned in the Great Recession and the housing crash that nearly blew up the world economy. Well, at least some of us learned. Not surprisingly central banker hubris knows no bounds, not even when it comes to trading on their own personal accounts.
When The Liquidity Tide Rolls Out
As one bank analyst noted this morning, the Fed tightening hasn’t even begun yet. The Federal Reserve is still pumping $60 billion in QE in January despite inflation that is ravaging the economy and turning the housing market into a speculative joke. There are a lot of home buyers who closed a purchase last month who may end up sick to their stomachs when this all settles. I’ve seen some absolutely crazy transactions just browsing through the local MLS data.
Real estate industry pundits, agents and economists are likely going to keep spinning a happy ending narrative on this mess. They are hoping and praying for a soft landing and a reversion to “more sustainable gains”. Unfortunately that’s not how markets work. Economists work from flawed models and optimistic assumptions.
The people who were pimping crypto, NFT’s and other speculative gambling fads are finding out just what happens when central banks pull the rug on the liquidity party. In 2008 we experienced the mother of all real estate bubbles. This time around, the everything-asset-bubble is more complex. Virtually everything has been inflated or distorted so there are few places to hide. Stocks, bonds, real estate, crypto, take your pick. It’s all a mess.
If you are in the market to buy or sell a home, I would recommend you find a good agent who has been around for a complete market cycle. Every day is not a good day to buy a home, especially when your central bank is just beginning to realize their own horrific policy errors. If you are in the market to sell a home, time is running out fast. Home prices perform much better with record low mortgage rates and $120 billion per month in liquidity than they do with out that crazy stimulus.
Idiot economists and industry shills talking up the impressive performance of DFW real estate in 2021 aren’t going to tell you what went into the sausage. The truth is less glamorous and more sobering. The serial arsonists at the Fed are now worried about inflation…after they spent the last twelve months denying it was a problem.
2022 is already off to a wild start. Rates on the 30-year fixed rate mortgage are already topping 3.5 percent. That’s spooking a lot of industry players. We’re early in ball game here, because the Fed is woefully behind the curve again.
It doesn’t take a rocket scientist to realize the current financial system is rigged to favor the wealthy. The results speak for themselves. Housing inequality and wealth inequality are directly related. With the markets drunk on liquidity and real rates which are still negative adjusting for inflation, investors and speculators have been falling all over themselves to buy up as many affordable homes as they can get there hands on. Many prospective buyers have been priced out of the market, but existing asset owners continue to reap the gains of massive trickle-down monetary & fiscal stimulus.
Let’s see how all of this strategic action has worked out for America’s middle class. Here’s the same chart showing where the money came from.
Real estate industry pundits and economists continue to put a positive spin on the current situation, despite all of the warning signs that things are out of control. The band is still playing, so they are going to keep dancing until the music stops. To put things into perspective, with unemployment at record lows, along with housing inventory at record lows, the Fed is still pouring $60 billion in QE into the system in January while they TALK about quantitative tightening. Instead of dropping 12 tons of napalm on the markets, they are only dropping 6 tons of napalm. This is the Fed’s version of monetary restraint.
“The Federal Reserve is not currently forecasting a recession.” Federal Reserve Chairman, Ben Bernanke – January 2008
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